Maxime Bernier gave a speech at the Economic Club of Toronto yesterday that was largely catnip for the audience there, saying that he wants to eliminate the capital gains tax, reducing corporate income taxes to 10 percent, making the accelerated capital cost allowance (ACCA) permanent, and eliminating corporate subsidies. While economics can point to the thinking behind some of Bernier’s plans (like below), others will point to the flaws in it, such as the ability to disguise salary as stock options that would no longer be taxed as capital gains, or the longer-term problems with the ACCA (like a new building being worthless for tax reasons in two years). It shouldn’t be too much of a surprise that Bernier’s ideas are largely slogans without a deep analysis of the real-world implications of them – kind of like how his plan to eliminate interprovincial trade barriers is just a gift to litigators rather than doing the hard political lifting necessary on such a file. Bernier has this kind of libertarian fanboy sense about him, that all of the problems can be solved by brandishing a copy of the constitution and shouting “freedom” will be all that’s necessary to kick-start a sluggish global economy, and that this will all be politically saleable to large swaths of the economy that have come to depend on government support in one way or another. And while yes, Bernier is indeed trying to bring some ideas to the table in this leadership contest while some of his competitors are trying to force the debate onto grounds of “values” and stoking national security fears, but it does remain true that it’s not really the point of leadership hopefuls to try and bring policy to the table that will change the direction of the party – that should be coming from the grassroots membership in a bottom-up and not a top-down process. But just remember – freedom! It’ll solve everything!
2/ On cap gains: If eliminated permanently, this suggests investment will rise. https://t.co/3hD7skJ6Jd #cdnpoli
— Trevor Tombe (@trevortombe) September 20, 2016
4/ But, there's equity concerns. Diamond and Saez (2011) https://t.co/GQcjrpuMBp argue that capital income should be taxed. #cdnpoli
— Trevor Tombe (@trevortombe) September 20, 2016
6/ On corp taxes, they are generally found to be less efficient than other taxes. See Box 3.1 of https://t.co/zxf7RYy43Z #cdnpoli
— Trevor Tombe (@trevortombe) September 20, 2016
8/ Will a corp tax cut lower govt rev? The above finds no. For a discussion, see @stephenfgordon post at https://t.co/v5OoJKa9vj #cdnpoli
— Trevor Tombe (@trevortombe) September 20, 2016
9/ Of course, tough to say. But @MaximeBernier proposed to eliminate biz subsidies to make up any shortfall.
— Trevor Tombe (@trevortombe) September 20, 2016
For back-of-envelope, this https://t.co/1Dr5eOgNyI would suggest cost ~$6-8B ish cost of moving to 10% (rough).
— Trevor Tombe (@trevortombe) September 20, 2016